Rubber Futures at Near 3-Week Low

Rubber futures dropped over 4% to around 220 US cents per kilogram in May, retreating from an over nine-year high as an earlier speculative-driven rally lost momentum. The rally had been fueled by concerns over tighter supply due to weather-related disruptions, with Thailand, the world’s largest producer, expected to see heavy rainfall in the coming week, raising risks of flash floods and river overflows in key southern rubber-growing regions. However, as prices climbed, elevated physical rubber prices began to squeeze margins for buyers and processors, weakening profitability and prompting end-users to scale back immediate purchases. This cooling spot demand fed back into futures pricing, with traders becoming more cautious on procurement and reassessing near-term demand strength. Meanwhile, higher crude oil continued to provide support, as Middle East tensions kept it elevated. This lifted synthetic rubber costs, making natural rubber more attractive.

Rubber futures surged more than 4% to above 230 US cents per kilogram in mid-May, hitting a fresh high in more than nine-years, propelled by expectations of tightening supply due to weather-related disruptions. Thailand, the world’s leading producer, is expected to see heavy rainfall over the coming week, according to the national meteorological agency, which also warned of possible flash floods and river overflows in the southern regions where most of the country’s rubber plantations are located. Prices were also supported by higher oil prices, as fading hopes of a quick resolution to the Middle East conflict kept crude elevated. Natural rubber prices tend to track oil, since higher crude costs increase synthetic rubber production expenses, making natural rubber more competitive.

Rubber futures rose above 220 US cents per kilogram in mid-May, reaching a fresh high since February 2017, driven by supply concerns linked to weather conditions. The rainy season had now officially begun in Thailand, according to the Thai Meteorological Department, raising risks of damage to large plantation areas and reducing output from the key producer. Markets are also monitoring stronger El Niño forecasts across other producing countries, expected to be the most severe in a decade. Although rubber trees are relatively resilient, analysts warn that prolonged dry conditions could still reduce yields. Meanwhile, higher oil prices continue to provide support amid escalating tensions in the Middle East, as they increase the cost of synthetic rubber production and make natural rubber relatively more attractive. Limiting gains, however, was weak Chinese vehicle demand, which reduces consumption of rubber used in tire manufacturing.